The CNE's website showed that nearly 374,000 valid votes had been counted, with the ruling Fretilin party collecting 29.6 per cent, followed by the National Congress of East Timor’s Reconstruction (CNRT), a party set up by former president Xanana Gusmao, with 22.8 per cent.

The Association of Timorese Democrats-Social Democrat Party (ASDT-PSD) coalition trailed third with 16 per cent followed by the Democrat Party with 11.9 per cent.

New challenge

Gusmao set up the CNRT this year to challenge Fretilin's grip on power amid ongoing unrest in the nation, which was hit by fighting between security forces and gangs in May, that left 37 people dead.

Fretilin has said it is confident of winning alone.

The CNRT had been tipped ahead of the polls as likely to enter a coalition with the ASDT-PSD and other smaller parties in order to govern, though no formal agreements have been struck.

But Mario Viegas Carrascalao, head of the Social Democrat Party (PSD), said on Wednesday that he would not enter a coalition with the CNRT at this stage.

"The CNRT is a natural alliance [for us], but its composition remains unclear, because there are those who still claim to be Fretilin members," he said, referring to a ruling party faction that the CNRT brought on board.

"This is something that is unacceptable, to work with those whose status remain unclear."

He said however the party was open to discussing the possibility of a coalition.

Unity government

Fernando "Lasama" de Araujo, the head of the Democrat party, said he favoured a cabinet of national unity, comprising all parties that win seats in the parliament.

He said if a coalition was formed, those in opposition would feel excluded.

“We are facing many problems. We don't trust each other. Differences between East Timorese are very deep," he said adding that he had not discussed the matter with Fretilin or the CNRT.

Last Saturday's polls, the first parliamentary elections since East Timor's independence in 2002, have been labelled "free and fair" by foreign observers, including the EU and South Africa.